THIS WEEK’S FOCUS

Reading the Market’s Mood: A Beginner’s Guide to Sentiment Indicators

Ever feel like the stock market is one giant mood swing? 🤯 One day, it’s flying high like it just had its morning coffee, and the next, it’s crashing like a sugar low at 3 p.m. Here's the secret: The market’s mood—or sentiment—isn't random. And, as an investor, understanding this "mood" can help you make smarter moves.

That’s where market sentiment indicators come in. These tools let you peek behind the curtain and see how traders and investors really feel. Nervous? Greedy? Panicked? Knowing this gives you an edge—because emotions drive markets more than you’d think.

Let’s break it down in a way that’s not boring (promise).

VIBE CHECK FOR THE STOCK MARKET

📊 Market Sentiment Indicators: What Are They?

Market sentiment indicators are tools that measure how optimistic or pessimistic investors are feeling about the market. They’re like polling data, but instead of elections, we’re talking about stocks, ETFs, and indexes.

Some of the most common ones include:

• Fear & Greed Index: Measures whether investors are feeling cautious or risk-hungry.

• Put/Call Ratio: Tracks how many people are hedging their bets versus betting on the upside.

• Volatility Index (VIX): Also called the "Fear Index," it spikes when people think the market’s going to tank.

Why does this matter? Because sentiment often works as a contrarian indicator. When everyone’s feeling euphoric, it might be a sign things are overheated. When fear takes over, it could mean opportunities are lurking.

Remember when people panic-sold during COVID’s initial market crash? Those who understood sentiment and held strong—or even bought in—reaped the rewards as the market bounced back.

RIDE THE WAVE — OR KNOW WHEN TO DUCK UNDER IT

🛠️ How to Use Sentiment Indicators in Your Investing Strategy

Using sentiment indicators isn’t about timing the market perfectly (spoiler: no one can). It’s about context. These tools act as a guide to help you navigate the market’s waves without wiping out.

Here’s how:

1. Spot extremes: If the Fear & Greed Index shows extreme greed, it might be time to pump the brakes and reevaluate. Conversely, if fear dominates, consider whether it’s time to buy the dip.

2. Pair with fundamentals: Sentiment indicators are not crystal balls. Use them alongside your analysis of a company’s performance, balance sheet, and market conditions.

3. Check the VIX during volatility: When the VIX spikes, it’s a good indicator that investors are panicking. This could be a sign to avoid impulsive selling—or even look for bargains.

Pro Tip: Combine sentiment with automation. For example, at Surmount, our automated strategies adjust to market trends, so you’re not left guessing whether fear or greed is driving the show.

GOING BEYOND FEAR VS. GREED

💡 Market Sentiment Indicators 2.0: Beyond the Basics

There’s a whole arsenal of advanced tools that can provide even sharper insights into the market’s mood.

Here’s what you should be watching:

• Short Interest Ratio: Want to know which stocks the market expects to fail? Check this. A high short interest ratio means bearish sentiment on a stock—but ironically, it can also signal a short squeeze opportunity (aka when bears get crushed).

• Commitment of Traders (COT) Report: This gem shows how institutional investors (the big dogs) are positioning themselves in the futures market. It’s a great way to spot trends before the crowd catches on.

• Bullish Percent Index (BPI): This measures the percentage of stocks in an index showing bullish patterns. When it gets too high, the market might be overheated; when it’s low, opportunity could be knocking.

As we head into 2025, inflation concerns, tech sector booms, and global uncertainty are creating wild swings in sentiment. These indicators can give you deeper insight into why markets are moving the way they are—and help you position yourself accordingly.

Track these advanced indicators to confirm your investment decisions. For example, if your analysis says a stock is undervalued but the short interest ratio is unusually high, there might be risks you’re overlooking.

WHEN EVERYONE’S RUNNING LEFT, THE MONEY IS OFTEN TO THE RIGHT

🔥 Contrarian Moves: Why You Should Go Against the Crowd

Ever heard the phrase, “Be fearful when others are greedy and greedy when others are fearful”? That’s classic Warren Buffett wisdom, and it’s also the essence of contrarian investing.

Here’s the deal: Most investors get emotional. They buy when everyone’s hyped and sell when everyone’s panicked. But if you pay attention to sentiment indicators, you can do the opposite—and profit from it.

Here’s a real example of this: The 2022 Tech Meltdown: During the Nasdaq crash in 2022, sentiment indicators like the Fear & Greed Index and the VIX screamed extreme fear. But savvy contrarians saw oversold opportunities in companies like Nvidia, Microsoft, and Meta. Fast forward: These stocks crushed it in 2023 and 2024.

How to play it now:

• Look for sectors everyone’s avoiding (like undervalued energy stocks or post-hype tech).

• Use the Fear & Greed Index or BPI to identify when sentiment hits extreme lows.

• Buy cautiously—but early.

NOT ALL PARTS OF THE MARKET MOVE AT THE SAME TIME

🏆 Sentiment and Sector Rotation: Stay Ahead of the Game

Ever notice how some sectors shine when others slump? That’s sector rotation—when money flows out of one area of the market and into another. Understanding market sentiment can help you figure out which sectors are about to get hot (or cold).

Sentiment + Sector Rotation Strategy:

1. Identify high sentiment sectors: Use indicators like the BPI or COT report to spot sectors with too much bullishness. These might be due for a pullback.

2. Find low sentiment opportunities: Look at sectors everyone’s avoiding. For example, if fear is dominating the real estate sector but fundamentals remain strong, it could be time to buy in.

3. Track economic cycles: Sentiment indicators often align with economic cycles. Defensive sectors (utilities, healthcare) thrive in risk-off markets, while growth sectors (tech, consumer discretionary) shine when optimism is high.

What’s Trending Now:

• Tech Sentiment: Despite being hot in 2024, tech stocks are starting to see stretched valuations—watch for cooling sentiment here.

• Energy Sentiment: Oil stocks remain polarizing. If sentiment turns bearish despite strong fundamentals, it could create an entry point.

Use sentiment indicators to time your moves between sectors. Surmount’s automated strategies take this a step further by continuously analyzing where the opportunities are—and adjusting your portfolio in real time.

YOUR GATEWAY TO CONSISTENT, HIGH-GROWTH INVESTING

🌟 The GLD-Tech Rotation Strategy: A Smart Play on Market Sentiment

The GLD-Tech Rotation Strategy is a cutting-edge approach that uses market sentiment to optimize returns by rotating between two assets with wildly different personalities: the ProShares UltraPro QQQ ETF (TQQQ) and the SPDR Gold Trust ETF (GLD). These two assets—one representing high-risk tech growth and the other a "safe haven" asset like gold—are influenced by shifting market sentiment in unique ways.

How The Strategy Works

The strategy looks at recent historical performance to identify whether tech stocks (TQQQ) or gold (GLD) is dominating. It reallocates capital daily, increasing its stake in the outperformer while using Bollinger Bands to minimize tail risk. When the price of either asset strays too far from its 20-day moving average (by more than 1.5 standard deviations), the strategy reduces its capital allocation to mitigate risk.

This strategy is perfect for investors who want to:

• Adapt to changing market conditions without constant manual adjustments.

• Balance high-growth potential (tech) with a defensive safety net (gold).

• Leverage automated decision-making to avoid emotional investing mistakes.

Rather than trying to outsmart the market on your own, this strategy does the heavy lifting by interpreting sentiment through data and rebalancing your portfolio accordingly. Think of it as your automated "mood reader" for the market—helping you stay ahead of the curve while minimizing risk.

🔑 Key Benefits of the GLD-Tech Rotation Strategy

1. Daily Adjustments: The strategy dynamically reallocates assets based on performance, so you're always positioned for what’s happening now.

2. Risk Management: By using Bollinger Bands to cut exposure during volatile swings, it reduces the risk of large drawdowns.

3. Sentiment Optimization: Tech and gold are polar opposites in how they respond to market emotions. This strategy seamlessly rotates between the two for maximum upside potential.